NEW YORK (Dow Jones)--Natural gas futures Thursday tumbled to their lowest levels since late October as a smaller-than-average storage draw and a mild weather outlook reinforced the view that inventories will be ample to meet winter's remaining demand for the heating fuel.
Natural gas for March delivery settled 10.7 cents, or 2.7%, lower, at $3.793 a million British thermal units on the New York Mercantile Exchange, the lowest ending price since Oct. 27.
The March contract expired at the settlement. Gas for April delivery fell 1.6% on the day, to $3.872/MMBtu.
The Energy Information Administration reported Thursday that U.S. gas stockpiles fell by 81 billion cubic feet last week, equal to estimates in a Dow Jones Newswires survey.
Inventories as of Feb. 18 stood at 1.83 trillion cubic feet, 3.2% below the five-year average, and 2.6% lower than year-earlier levels. Last week's draw fell short of both the 148-bcf five-year average withdrawal and last year's 174-bcf decline.
Stockpiles have fallen sharply since reaching a record high in November at nearly 10% above the five-year average.
But many analysts aren't expecting the more-balanced supply picture to last, as North American gas-production growth is seen outpacing increases in demand in 2011. Despite unusually low prices for the heating fuel, industry observers say producers haven't cut back on drilling by enough to stifle production growth.
Larger-than-average declines in stockpiles amid frigid weather supported gas prices in December and January, but futures retreated below $4 recently with the arrival of milder weather as market participants started looking ahead to the coming spring decline in gas demand.
"When you look at the kind of extensive weather-driven winter demand for gas we had, we could only get up to $4.60 or so," said Steven Parla, an analyst with Affiliated Research Group LLC. Futures are on track for their lowest winter peak since 2001-02, as strong production growth from shale rock formations capped gains.
The EIA in its latest outlook saw U.S. marketed gas production increasing by 0.8% in 2011 compared with year-earlier levels, while domestic consumption is expected to increase by 0.3%.
"We're right back where we were with accelerating rates of production," Parla said. "There's a potential for sub-$3 gas this spring."
Meanwhile, forecasts continue to see a two-tiered weather pattern across the country during the next two weeks, with colder-than-normal temperatures across parts of the north and west, and mild or warmer-than-normal temperatures in the south. Forecasters expect the most severe cold to be limited to the northern plains states and Western Canada.